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Economy May 14, 2013

CAG report shows why food security will be a disaster

By Vivek Kaul

On 7 May, the Comptroller and Auditor General (CAG) of India presented to Parliament a Performance Audit of Storage Management and Movement of Foodgrains in Food Corporation of India.

This report has gone largely unreported in the media, given that it does not contain any big number running into lakhs of crores like previous reports of the CAG did. But it clearly explains why the government of India is in no position to introduce the Right to Food Security Bill. And if it does that, it will be a disaster.

Currently, the government declares a minimum support price (MSP) for wheat and rice paddy, and buys them directly from farmers using the services of the Food Corporation of India (FCI) as well as state government agencies. FCI and other agencies are expected to buy all the rice and wheat that lands up at government mandis.

The data put out by CAG clearly shows that the procurement of wheat and rice by the government has gone up dramatically since 2006-07. In 2006-07, 75.8 million tonnes of wheat was produced by Indian farmers. Of this nearly 18 percent landed up with FCI and the state government agencies. In 2011-12, the wheat produce had shot up to 93.9 million tonnes. Of this nearly 35 percent landed up with the FCI and state government agencies.

When it comes to rice, the situation is even more pronounced. In 2006-07, the total rice production was at 93.4 million tonnes. Of this 32 percent landed up with FCI and other state agencies. In 2011-12, the rice produced was at 104.3 million tonnes. Of this a whopping 54 percent landed up with FCI and other state government agencies.

What this tells us is that more and more rice and wheat is landing up with the government. This is primarily on account of the fact that the minimum support price has consistently been raised over the last few years, encouraging farmers to sell directly to the government. And this has been done in a totally random manner.

As the report points out, "No specific norm was followed for fixing of the Minimum Support Price (MSP) over the cost of production. Resultantly, it was observed (that) the margin of MSP fixed over the cost of production varied between 29 percent and 66 percent in case of wheat, and 14 percent and 50 percent in case of paddy during the period 2006-07 to 2011-12."

Typically, MSP needs to be fixed depending on the rates recommended by the Commission for Agricultural Costs and Prices (CACP), which is a part of the Ministry of Agriculture. While determining the MSP, CACP takes into account the cost of production, domestic and international market prices, stock position, prices fixed in previous years, etc. So even though there is a robust method for determining the MSP at which the government of India should buy rice and wheat from farmers, that is not being followed.

Also as more and more rice and wheat lands up with the government, there is less of it available in the open market. In 2006-07, 63.3 million tonnes of rice landed in the open market. By 2011-12, this had fallen by a huge 23.6 percent to 48.3 million tonnes. The same is true about about wheat as well, though the drop is not as pronounced as it is in the case of rice. In 2006-07, the total amount of wheat in the open market stood at 62.1 million tonnes. By 2011-2012, this had dropped to 61.4 million tonnes.

And that explains the high cereal inflation of 16.65 percent in April, 2013. If food security becomes a right, the government will need to buy more rice and wheat than it currently is doing, and that will mean lesser amount of rice and wheat for the open market - as has been the case over the last few years. This will push up their price further.

The conspiracy theory here is that if the Food Security Bill is passed (or even brought in through an ordinance) a lot more rice and wheat will land up in the open market and thus slow down cereal inflation. The government plans to use its rotten public distribution system to distribute rice and wheat, and that means a lot of it will be sold in black and end up in the open market. This is expected to drive down the price of rice and wheat. And this, for all we know, might very well turn out to be true.

Once FCI and other state government agencies have procured the wheat and rice, it needs to be stored. The CAG has also audited the total storage capacity of FCI (its own as well as hired) over the years.

As on 31 March 2007, the total storage capacity of FCI stood at 25.2 million tonnes. The total stock of foodgrain (i.e. both rice and wheat) stored in the central pool as on 1 June 2007, stood at 25.9 million tonnes. So storage capacity more or less matched the total amount of foodgrain stock - also called the central pool.

But the situation has changed dramatically since then. As on 1 June 2012 (the central pool usually peaks in June), the total amount of foodgrain in the central pool stood at 82.4 million tonnes. Some of this grain was distributed to the states which do not produce enough rice and wheat of their own. After this, the total amount of food stocks stood at 66.8 million tonnes.

In comparison, the storage capacity was at 33.6 million tonnes. This meant that there was a gap of 33.2 million tonnes. So nearly 50 percent of the foodgrain does not have any storage space.

As the CAG report mildly puts it, "the available storage space operated by FCI was largely inadequate". Given this lack of storage space, FCI could not take over the wheat that had been procured by various state government agencies on its behalf. This also explains to a large extent why newspapers regularly print photographs of rice and wheat rotting in the open after it has been procured by the government.

So what does this mean in terms of the food security law? As more and more rice and wheat is bought by the government, a large amount of it will rot in the open given that FCI does not have enough storage space. Of course, the FCI can build/hire new storage space. But its past record of doing the same is simply abysmal.

As the CAG report points out, "The total foodgrains stock in the Central Pool recorded an increase of 45.8 million tonnes between 2006-07 and 2011-12; FCI increased its storage space through hiring or owned space only to the extent of 8.4 million tonnes (18 percent) which was not commensurate with the increase in foodgrain stock level. Its owned storage capacity increased by mere 0.4 million tonnes during the period."

Put another way, while the FCI managed to create storage capacity of a measly 0.4 million tonnes on its own, the total increase in foodgrain stock was 100 times that increase. Even if we take the total increase in storage capacity of FCI, including the hired capacity, the increase in stock over additional storage was almost five- and-a-half times.

Reuters

Jhollawalas just want the Right to Food Security Bill to be introduced and the rest of it will sort itself out as we go along. Or, at least, that is the argument that they are making. Reuters

So what does this tell us? The FCI has not been able to create storage capacity. And it cannot create storage capacity in a hurry in the times to come. Given that, where will all the rice and wheat that will be bought by the government to fulfil the Right to Food be stored? Why don't the jholawalas led by Amartya Sen give us an answer for that? Imagine the humongous amount of rice and wheat that will rot throughout the country after it has been acquired by the government. What will be the social and economic implications of that?

FCI procures most of the rice and wheat in the states of Punjab and Haryana. As the CAG report points out, "During the period 2006-07 to 2011-12, about 75 percent of the stocks moved...was largely concentrated in the North and the remaining 25 percent was moved from other procuring states of Andhra Pradesh, Chhattisgarh, Odisha, West Bengal and Madhya Pradesh. During the six-year period, movement of stocks by rail constituted about 92 percent and the remaining 8 percent was moved by road."

Hence, rice and wheat is moved from states which produce more than what is required for consumption and distribution within the state, to states which do not produce enough. This movement is largely carried through railways. Every month FCI prepares a movement plan in terms of railway rakes to be dispatched to various destinations throughout the country. The trouble is that there is a shortage of railway rakes. In 2006-07 this shortage was 10 percent. In 2009-10 it increased to 12 percent. And by 2011-12 this had shot up to 17 percent.

This shortage of rakes needs to be addressed immediately. If the Food Security Bill is legislated, this shortage is likely to go up, given that more foodgrain will have to be moved across the country.

These are some of the basic issues that the CAG report on FCI points out.

The jholawalas are not bothered about this. They just want the Right to Food Security Bill to be introduced and the rest of it will sort itself out as we go along. Or, at least, that is the argument that they are making.

But anyone who has some understanding of this country and the way it works knows that nothing will sort itself out. Things will get bad, before they get worse.

Let me conclude this piece with one my favourite Urdu couplets:

Na Khuda hi mila, na visaal-e-sanam/Na udhar kay rahay, na idhar kay rahe
(I found neither faith, nor union with my lover/And now I belong neither there nor here).

That's the way we seem to be headed when it comes to right to food security.
Vivek Kaul is a writer. He tweets @kaul_vivek

by Vivek Kaul

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